Both the S&P 500 ETF (SPY) and the Nasdaq 100 ETF (QQQ) closed Wednesday’s trading session higher, driven by the Fed’s decision to lower interest rates by 25 bps.
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Of the 12 voting Federal Open Market Committee (FOMC) members, nine voted in favor of cutting rates, while three dissented. Both Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeffrey Schmid voted to hold the rate steady, while Fed Governor Stephen Miran pushed for a larger 50 bps reduction.
Furthermore, the central bank’s Summary of Economic Projections (SEP) showed that it now expects U.S. gross domestic product (GDP) to grow by 2.3% in 2026, up from its estimate of 1.8% in October. It also expects personal consumption expenditures (PCE) to rise by 2.4%, down from 2.6%, signaling a faster pace of cooling inflation.
Afterward, Fed Chair Jerome Powell signaled the Fed will take a slower approach to additional rate cuts in 2026, echoing the FOMC’s median interest rate forecast of 3.4% for 2026, which implies just one rate cut. He explained that risks to both inflation and employment are still present, creating a challenging situation for the Fed. In addition, he believes that recent economic data should be taken with a grain of salt because it could be skewed by the government shutdown.
“There is no risk-free path for policy as we navigate this tension between our employment and inflation goals,” said Powell. He added that the central bank would take a “wait and see” stance on further rate cuts, with the next FOMC meeting set for January 28. CME’s FedWatch tool assigns a 77.9% probability of a steady rate and a 22.1% chance of a 25 bps reduction next month.
Powell’s term as Fed Chair ends in May 2026, with many expecting President Trump to nominate National Economic Council Director Kevin Hassett as his successor. On Tuesday, Hassett suggested that the Fed has room to cut rates even further if economic data backs it and promised that he would “avoid being part of politics” if nominated to the position.
The S&P 500 (SPX) closed with a 0.68% gain, while the Nasdaq 100 (NDX) returned 0.42%.
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